Casino Stocks Soar on Wynn’s Results

Gaming stocks with exposure to Macau are up big today after Wynn Resorts (Nasdaq: WYNN  ) reported earnings. Macau gaming stocks have been in a bit of a funk through the summer as gaming growth waned, but Wynn gave confidence that growth has returned and is paying back investors with a big dividend.

The numbers
In the third quarter, Wynn's overall revenue was flat at $1.3 billion, but adjusted net income did rise to $1.48 from $1.05 a year ago. The earnings number was better than expected.  

This wasn't really a case of outstanding returns as much as lowered expectations. Revenue in Macau actually fell 4.3% to $951.4 million and adjusted EBITDA fell 1.3% to $292.2 million. You would think that declines in Macau would result in panic, but investors were expecting worse.

For the first time in a long time, Las Vegas was the bright spot for Wynn. Revenue jumped 11.8% in Las Vegas to $388.0 million and adjusted EBITDA rose 29.7% to $110.4 million. The strong results haven't affected trading in MGM Resorts (NYSE: MGM  ) and Caesars Entertainment (Nasdaq: CZR  ) the way that you might expect because Macau tends to take all of the attention. When these two companies report, we'll see if Wynn's results were an outlier or a sign of steady improvement.

Overall, we can see from the graph below that Wynn's EBITDA has leveled off in Macau and isn't yet showing sustained long-term improvement in Las Vegas. The weak numbers in Macau continue the narrative of gaming moving to Cotai, where Las Vegas Sands (NYSE: LVS  ) and Melco Crown (Nasdaq: MPEL  ) have their flagship operations.

Expectations for Wynn's current resort should be tempered, but the growth on Cotai should help the company when its resort on gaming's hot spot is complete in 2016.

Cash for shareholders
What has Wynn's stock popping even more than the earnings announcement is some big dividend news. The company will pay a $7.50 special dividend on Nov. 20, 2012, to those holding the stock at the close on Nov. 2. This is in addition to the normal $0.50 dividend.

Wynn will also begin paying a $1-per-share quarterly dividend next year, which puts the stock's yield at about 3.4%. Steve Wynn wants to turn the company into a dividend stock, and with great cash flow generators and fewer growth opportunities, now is the time to do it.

Foolish bottom line
Wynn isn't the growth stock that it once was, but I think we're seeing that operations are stable and investors can expect some improvement as Las Vegas and Macau's gaming markets grow. This will hold the company over until its new resort opens on Cotai, which will potentially double the company's revenue and EBITDA.

Until Wynn joins the party on Cotai, this hot spot will be dominated by Las Vegas Sands, the most valuable gaming company in the world. Learn about the company's opportunities, and the risks it has going forward, in our brand-new premium report on Las Vegas Sands. We're providing a full year of analyst updates to go with it, so make sure to claim your copy today by clicking here.

Fool contributor Travis Hoium manages an account that owns shares of Melco Crown Entertainment and Wynn Resorts, Limited. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw

The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (0)

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  • Report this Comment On October 25, 2012, at 1:15 PM, cp757 wrote:

    Wynn isn't the growth stock that it once was.

    Travis Hoium

  • Report this Comment On October 25, 2012, at 1:24 PM, cp757 wrote:

    Wynn Macau operations reported a 4.3 percent decline in revenues, to $910.5 million, on sharply reduced table play by high-end players. Its average daily rates of $307 at its hotel was 2.5 percent lower than a year earlier.

    EBITDA at the Macau operation declined by 1.3% to $292.2 million

    The market in Macau moved to Las Vegas Sands at the area Sheldon Adelson built called Cotai Central.

  • Report this Comment On October 25, 2012, at 2:44 PM, spokanimal wrote:

    In Macau, Wynn did poorly with VIP gaming but put up a respectable number in Mass Market Gaming.

    Wynn is primarily a VIP-oriented resort in Macau, whereas Sands is the market share leader in Mass Market gaming in Macau.

    Although I'm looking forward to LVS's Q3 report, I have bigger expectations for LVS's Q4 report.

    The reason is because Q4 will more fully realize:

    1. The near completion of Sands China's VIP-room refurbishments. This has been an almost $150 million capital expenditure by Sands... the initial results of which can be seen in the Plaza's Q1 revenue tally... and Wynn's comments in their conference call about the intense competition that upgraded VIP accomodations have HAD in Macau.

    2. A full quarter's worth of Cotai Central's full casino operations. In Q2, the revenues from only phase 1 of Cotai Central had to absorb the full expense of both phase 1 and preliminary phase 2 expenses. Q4 will reflect the full revenue-earning power of both phases.

    3. Better overhead absorption at Venetian macau. Venetian has had to deal with under-utilization of it's massive, ancillary attractions since it was first built. The opening of 3,800 hotel rooms across the street will greatly support the absorption of that overhead with higher revenues. There's an age-old saying among casino executives that you "play where you stay"... and Venetian's MICE attendees have been having to "stay" downtown ever since Venetian was built back in "07.

    4. Critical mass borne out of "loyalty" efforts. Many of the people staying at Cotai Central last quarter were staying there in lieu of staying at other Sands resorts (eg: cannibalization). Today, former patrons of other resorts are being promoted with inter-resort offerings from Sands that reward them at ALL sands resorts on Cotai when they patronize any one of them. Channel checks are now beginning to see the initial compounding impacts of those efforts.

    Spokanimal

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